What It Means And Why It Is Important

March 10, 2022 Editor Ethereum 0

Ether’s dominance, a measure of how strong a cryptocurrency is compared with all other coins in the market, hit an all-time high of 22.40 percent in December 2021. However, it’s been on the decline ever since, per a report. It lost 4 percent over the last two months, and a fresh dip of 3 percent on March 6 saw the dominance of Ethereum’s native token Ether slide to 18.40 percent. This is the second significant drop in the span of a week after ETH’s dominance fell from 18.49 percent to 18.14 percent on March 4.

But what exactly is market dominance and why is it important?

Dominance is an important metric to understand the position of a cryptocurrency in the market with respect to its peers. It is simply the ratio between the market cap of a particular cryptocurrency and the total market cap of the entire crypto space.

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Bitcoin’s market dominance was close to 100 percent in the early years of cryptocurrency. However, it started to drop significantly as new cryptocurrencies were created. Ethereum was especially responsible for taking away Bitcoin’s dominance in the market.

Ethereum’s market dominance shot up in 2021. Even though Ethereum is only half as old as Bitcoin, it has quickly risen to become the second-largest cryptocurrency by market cap, taking a large chunk of the market dominance in the process.

Ethereum’s dominance in the market had reached a high of 22 percent on the back of multiple bull rallies in 2021. This can be attributed to the ongoing changes in the network. The switch to the proof-of-stake consensus mechanism was continuous, exemplified by upgrades like the London hard fork and the glacier update. All of which were meant to augment the network’s performance, making it more attractive to investors and developers alike.

Another reason for Ethereum’s rising popularity was the various non-fungible token (NFT) and decentralised finance (DeFi) projects that were being built on the network. The world of DeFi also saw a boost in popularity in 2021, and Ethereum had hundreds of DeFi projects under its belt. NFTs also were the talk of the town in 2021. And the most popular NFT marketplaces were built using Ethereum. All this drew significant investor interest towards Ethereum. So, in the case of Ethereum, dominance is also an indicator of how often it is used for smart contracts and the level of its popularity on decentralised applications (dApps).

As the new year approached, it seemed that Ethereum would continue its dominance. However, two months down the line, the dominance of Ethereum started shaking. And after two successive drops in this month alone, things aren’t looking too good.

ETH retests the $2,500 mark.

To make matters worse, Ethereum has dropped to the dreaded $2,500 level once again. This is not surprising given the slow momentum of the network in the last week and its dropping dominance. The failure to secure any significant support at this level could mean that the price of Ethereum may slip even further, pushing it towards $2,000.

(Edited by : Priyanka Deshpande)

First Published:  IST